It was mentioned in passing on one of the Fox shows that mortgage REITs have been struggling lately. Here is a chart of four of them, NLY, IMH, TMA and RWT.NLY and IMH in particular are down quite a bit in the last two months. I have written negatively about mortgage REITs a few times over the life of this blog, you can read here and here if you'd like.
The basic idea, and I think this is very simple (which I look for), is that the next big move in interest rates will be up. This has been the case for a while regardless of when it happens. This will hurt the businesses of the companies, some worse than others. The other thing I have touched on before about these is that often the financial structures are very complex. This all seems like a big ongoing headwind and reason to stay away.
I can not get every stock pick right but avoiding very visible area like this makes my job much easier.
2 comments:
I think TMA ( Thornburg Mortgage ) primarily does ARMs, so maybe they will be a little insulated from a rise in rates.
http://investor.thornburgmortgage.com/phoenix.zhtml?c=117476&p=irol-faq#10049
The way I understand Mortgage REITs is that the key issue for them is the spread between short and long term money. Currently they're hurting because the yield curve has flattened, but as you know, that's as cyclical as everything else.
To have these funds sitting in an IRA reinvesting 7-8% dividends for a ten year time span isn't a bad way to go IMHO...
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